Homework Answers
| Cost of new luxury car | Euro | 50000 | |||
| down payment | Euro | 5000 | |||
| Unpaid Balance (Principal) | Euro | 45000 | |||
| Period of payment (n) | 8 | years | |||
| Rate of compound interest ( r) | 12 | % | |||
| Now, equal annual payment | = | Principal/Annuity Factor | |||
| where, Annuity Factor = |
(1 – (1+r)-n ) ÷ r |
||||
= (1 - (1+0.12)-8 ) /0.12
= (1 - (1.12)-8 ) /0.12
= (1 - (1 / 1.12)8 ) /0.12
= (1 - (1 / 2.475963) /0.12
= (1 - 0.4039 ) /0.12
= (0.5961 ) /0.12
= 4.9675
Hence, equal annual payment = Principal / Annuity Factor
= 45000 / 4.9675
= 9058.89 Euro
So, equal payments would be 9058.89 Euro
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